IRC Limited (1029) Earnings Call Transcript & Summary

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the conference call. Kent, please begin the call, and I'll be standing by.

Thank you. Good morning, everyone. I would like to welcome all of you to IRC Limited 2019 Fourth Quarter Trading Update Conference Call. With us today, we have our CEO, Mr. Yury Makarov; and also our Company Secretary and Corporate Controller, Mr. Johnny Yuen. [Operator Instructions] As a reminder, this conference is being record. Announcement and PowerPoint slides we'll be using for this call have been upload, and you can download the documents from our website, www.ircgroup.com.hk. [Foreign Language] Okay. It's now my pleasure to turn the call over to our CEO, Mr. Makarov. Mr. Makarov, you may begin now.

Thank you, Kent, and good morning, ladies and gentlemen. We are very happy to announce that after summarizing the results of the fourth quarter of the last year, we see a 20 -- almost 25% improvement in the production and 15% in sales when comparing to the 2018. And once again, we are very glad that in October, we were happy to reach 100% capacity. And our average capacity over the year was 81%, although in the Q4, we have done 87%. There were number of issues, which were keeping us from -- under full capacity. One of them was the restriction for the shipments, which was implemented by the Russian Railroads in the direction towards China, and quite a big amount of our shipment goes to China. And this was completely not our fault. And we -- although having this restriction, we have done plus 15% in the shipment. And we believe that in nearest future, it will be -- these restrictions will be canceled. Another problem, which affect our production in the fourth quarter was problems with the ball bearing in one of the ball mills. And it was quite surprising for us that only after a couple of years of operations, this very expensive and very big [ Sweden ] ball mill or ball bearing was damaged. And -- but in any case, these problems have been fixed, and we now have very big reserve of these bearings. Hopefully, it will not affect our operations anymore. Another area of our permanent attention was drying unit, which, once again, doesn't allow us to dry everything we were producing. And also this area was in the process of mitigating, which we have done quite a lot at the -- during the whole period. But later, when we start operations and add the higher capacities, we find out that we need to do some another minor improvements, which will help us to mitigate problems, which we inherit from our subcontractor. I think that's almost everything which I was going to inform you, and I would like to switch over to Johnny, which will brief you about information on our financial. And after that, we will be happy to answer your questions if there will be any. Johnny, please.

Thank you, Yury. You can turn to Slide 9 of our presentation material. It shows our current cash balance at USD 4.3 million. I would like to highlight that this is after our servicing of the cash flow handle in the fourth quarter 2019, where we have paid slightly more than $10 million for principal repayment and interest. The total outstanding debt as of the end of the year is USD 224 million. And that is currently our liquidity profile of the company. If you turn to Slide 10, you can see what the ruble is doing. I think we are seeing a continuous weakness in ruble, which is beneficial for us because our -- obviously our costs are mostly denominated in Russian ruble. So the depreciation of the currency helps us in maintaining our costs. Slide 11 shows the movement of iron ore price. I think with this year, we are seeing some encouraging movements with quite a strong price throughout the year. As of the year-end 2019, the iron ore price was $104. And now it's hovering at the level around -- of around $110 per tonne, which is a very healthy level, and it's staying there. So it is encouraging. Slide 12 looks at the differences between the price for 65% iron ore and 62% iron ore. Just to remind you that K&S is producing and selling the 65% iron ore. So the chart shows that the blue line is always ahead of the red line. And the good thing is that the gap between these 2 is widening. So we are expecting to see a high premium in terms of price for 65% iron ore. So this is an encouraging point which I would like to highlight to you. So I think the material that I have in the moment -- at the moment, we are closing our books to announce our results in March 2020. So by that time, we will do another call, and I will able to give more update about our financials for the year 2019. And that's all from my part. So Yury, I'll pass it back to you. And if there's nothing, we can do the Q&A.

Maybe I should -- thank you, Johnny, for your information. And it's probably worth to note that there is a bridge between Russia and China, which is under construction. And according to the media, it will be commissioned by the end of this year, according to the local media. It's -- probably a lot bit of information we will need to mention, and we can pass to Q&A.

[Operator Instruction] Our first question comes from [ Mr. Miller ] from -- a private investor.

Sorry. Yes, I'd like to focus my question on the bank balances, which in view of the iron ore climate of around USD 100 a metric tonne in the last few months, I'd just like to sort of get some guidance of where that's going to hit in the months ahead because the -- it seems to be that IRC is not -- I mean, the -- I mean, basically, where is the cash going? Debt balance has been increasing. It tends to be just in the low balance for quite some time. Is this going to change?

Thank you for the question, [ Mr. Miller ]. I think throughout 2019, we have been commissioning the plant. We have been ramping up the production. And also, we have been also paying out some of the creditors as well. Debt has been accumulated over the [indiscernible]. And so this -- there's obviously some working capital movements throughout the year. And so we -- that's our position. Now obviously, we have to service our loan as well. So there's certain areas where we [indiscernible] but hopefully, I mean, going forward, we'll see some more generation in cash.

And just one other follow-up question. Does that mean that there would be more scope to expand the mine with the increase in working capital, assuming that the iron ore prices remain pretty stable at around what they are?

So can you clarify the question? Are you talking about the expansion plan of K&S or about...

Yes, yes, correct. So about 6 million metric tonnes. I mean, given that the cash flow, assuming it will improve markedly in the months ahead, where does that stand? What's the proposed expansion?

Right. Let's put it this way. I think we have a plan on day one, when we first designed the mine, we have basically 2 options. The first option is to build a 3.2 million tonne production mine, which is the one that we have now. And the other plan is to basically double it to a 6.3 million tonnes, which is basically option 2. And we allow opting for option one, obviously. And -- but we do -- the option 2, i.e., 6.3 million tonne, that will require quite a lot of CapEx and essentially start putting -- approving another plant, let's put it this way. So that will be quite, quite far away. But what we can do at the moment, we are looking at the option to do a, what we call, the option 1.5, i.e., we can spend some CapEx on the existing plant machinery to expand the capacity to 4.5 million tonne per year. So this is an option which we are looking at. But obviously, it requires some more CapEx. And as you rightly pointed out, we are now not very rich in cash. So -- but this is something actually we will work on when we have more cash to expand the plant.

[Operator Instruction] There seems to be no further question at this point in time, sir.

[Foreign Language] If there is no more question, we are now ending the meeting here, and thank you, everyone, for joining the call today. We appreciate your time. If anyone has any questions, please feel free to contact us at any time. Contact details can refer to our corporate website www.ircgroup.com.hk. With that, thank you, and have a great day.

Thank you. Bye.

Thank you for your participation. This conclude your conference.